Are you a programmer who provides your services to foreign contractors? Do you run your own business and invoice your clients with VAT for your work? Before recruiters hire offshore web design developers from world known companies like Digiteum, specialists should be educated on the topic of taxation. Find out what taxation methods exist for programmers and how they differ. In this article you will find information on what elements an invoice for a foreign contractor should contain, as well as an answer to the question of whether a taxpayer can deduct VAT on purchased goods if he provides programming services to foreign contractors.
Registration Of Entrepreneurial Activity
Entrepreneurial activity is an organized income-generating activity carried out in its own name on a permanent basis. Such a definition is contained in the Law of March 6, 2018 – the Law on Entrepreneurs.
Thus, having analyzed the definition of entrepreneurial activity, it can be indicated that a programmer who provides his services to other entrepreneurs, regardless of whether they are from your country or foreign entities, performs entrepreneurial activity within the meaning of the Entrepreneurs Act.
In order to officially start a sole proprietorship, it is necessary to register it with the Business Registration and Information Center. This can be done through electronic applications – through a trusted profile, by correspondence, or in person – at the city or commune office. It is also necessary to register with ZUS – through a trusted profile or in person, to register as a contributor.
Form Of Taxation For A Programmer
When registering a business activity, the programmer must choose the form of taxation that he will use in the course of his activity.
It has the following options:
- taxation according to the tax scale (17% or 32%) – the tax scale is the only one that allows you to take advantage of tax benefits and settle jointly with your spouse. The 17% tax will be paid if the annual income does not exceed PLN 85,528. Thus, up to an annual income of 85,527.99 PLN, the tax rate is 17%, and above this amount, it is 32%;
- flat tax (19%) – it is not possible to benefit from tax exemptions, but the tax rate does not vary depending on income;
- registered lump-sum payment (services related to software are taxed at the rate of 17%) – although the tax rate does not change depending on income, with this method the entrepreneur-programmer has no possibility to settle business expenses – therefore, he cannot deduct, for example, the purchase of equipment for work.
The question “How to hire offshore web design developers” is always raised in the issue of taxation. It is the programmer who decides what form of taxation he will adopt. It should be taken into account:
- the amount of income per year (if it is high, it is possible that the taxation scale will be disadvantageous for him if he cannot take advantage of tax benefits);
- the tax benefits to which he is entitled;
- remain married and under the joint ownership regime;
- business expenses and the possibility of including them in non-taxable expenses.
It should be noted that the registered lump sum is the least commonly chosen form of taxation due to the fact that it cannot be used for business expenses. This is especially important for programmers, as they buy expensive electronic equipment that they have to constantly improve, and participate in courses and trainings, and their income costs are often high.
Programming Services For Foreign Counterparties – Invoicing
When recruiters hire an offshore web design specialist, pay attention to their terms of cooperation. In the case of international transactions, an entrepreneur, e.g. a programmer, invoices for the service provided. It is important that this service is not subject to double taxation – both the customer and the contractor do not pay tax.
Therefore, the programmer is entitled to invoice “for example”. “Np” means “not subject to” and refers to invoices confirming sales. Neither the VAT rate nor the amount are included in such an invoice, because, in the case of this type of transaction, VAT is paid by the buyer, i.e. the foreign contractor. These are invoices to be issued, for example, by programmers, graphic designers, and translators. These are so-called reverse payment invoices.
The following information must be included on the invoice:
- the names and addresses of the seller and buyer,
- the TIN of the seller and the buyer,
- the invoice number,
- date of issuance,
- the scope of services provided,
- net value of service,
- net sales value,
- the sum of the value of sales of non-taxable services,
- the words “reverse charge” – information that the tax is paid by the buyer.
The best solution is to create bilingual invoices – in your country and in the language used by the contractor, so that it is understandable not only to the parties to the transaction but also to the tax inspection officials if they conduct a tax audit and demand access to all documents of the audited programmer.
All invoices, regardless of whether they provide for payment of VAT, must be included in the sales records. The obligation to pay the tax and include the transaction in the VAT records arises when a service is provided to a foreign customer.
It is also worth keeping all other documents relating to foreign trade transactions – bank statements, cooperation agreements, e-mail correspondence, etc. – to increase security and for the purposes of a possible tax audit.
Programming Services For Foreign Counterparties And VAT Deduction
The question arises as to what to deduct VAT from since the taxpayer-programmer does not pay any transaction tax at all because it is paid by the purchaser of the service.
It should be noted that in such a situation, the entrepreneur has the following options:
- transferring the amount of the surplus to the next calculation period;
- application to the tax inspectorate for a VAT refund.
By transferring the surplus to the next billing period (month or quarter, depending on the calculation chosen by the programmer), he can expect that it will cover the VAT due for that period.